Victorville gaining financial ground, but not out of water

A legal settlement with an engineering company has made the city of Victorville $54 million richer, but the city has a ways to go before its financial woes are resolved, City Manager Doug Robertson said.

The city agreed to accept the $54 million settlement offer from Jacobs Engineering, formerly Carter & Burgess, which contracted with the city to design and build the ill-fated Foxborough power plant, which was abandoned after inflated costs and blown project deadlines forced the city to scrap the project.

"We still have a little work to do before we're all the way back, but we're certainly a lot better off than we were six months or 12 months ago," Robertson said of the city's financial situation. "This (settlement) will help eliminate a majority of that interfund borrowing we were criticized for, and rightly so."

In its annual report released on June 30, the Grand Jury was highly critical of the city's use of interfund loans and restricted funds and its botched power plant projects, including the one at the Foxborough Industrial Park and Victorville 2, or VV2, a planned 500-megawatt power plant at Southern California Logistics Airport.

The Grand Jury concluded that a lack of controls allowed the city to enter into the high-risk projects that ended in failure and cost the city millions, including $13 million the city was unable to account for.

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Robertson said $30 million of the $54 million settlement will go toward reducing the debt burden of bonds issued for the Foxborough power plant's construction.

The remaining $24 million will be used to repay about $22.5 million in interfund borrowing between the Victorville Municipal Utility Services fund and the Victorville Water District. The Water District in turn will repay roughly $20 million in additional internal borrowing.

The city entered into an agreement with Carter & Burgess in 2004 to design and build a cogeneration power plant at the Foxborough Industrial Park without a thorough assessment of risks, a formal business plan or budget, or sufficient controls in place. The project was never completed due to a series of mishaps that cost the city tens of millions of dollars, the Grand Jury said in its report.

Carter & Burgess sued the city in 2008 seeking $107,000 in unpaid fees. The city countersued for $52 million. A jury awarded the city the full amount it requested following a seven-week trial, and the judge subsequently awarded an additional $1.7 million in attorney fees to the city.

Carter & Burgess appealed, but continued negotiating with the city for the settlement, which the city accepted on Nov. 9 in a closed session meeting of the City Council.

The city's total bond debt for the Foxborough project is $83.7 million, which means the city will still owe $57 million after making the $30 million payment, Robertson said.

The remaining $24 million being paid to the Victorville Municipal Utility Services District will eliminate existing internal borrowing totaling $22.5 million. The additional $1.5 million will be used to replenish reserves in the General Fund and/or for current year debt service, Robertson said.

The city's general fund revenues are now at roughly $47 million and expenditures are at approximately $46,973,920, Robertson said, adding that the city isn't on the hook for any other debts.

The Securities and Exchange Commission has been investigating the city's bond debt since August 2010, and the investigation remains pending.

"I think it's fairly recent we got a request for some documents, definitely within the last month," Robertson said. "Every few months, they'll interview an employee or two."

As to who has been interviewed and which departments the SEC is focusing its attention on, Robertson said he could not disclose that on the advice of the city attorney.

Though Robertson assures the city is now operating with a balanced budget, City Councilwoman Angela Valles doesn't believe the picture is as rosy as it is being drawn.

She said the city's most pressing financial issues are being able to make the bond payments timely, paying back the water district and putting more sheriff's deputies on the street.

On Thursday, the Southern California Logistics Airport Authority announced its plans to issue a notice to its bondholders informing them the authority expects to be $2.9 million shy of its debt obligation come Dec. 1.

The default, the second for the SCLAA since the dissolution of the state's roughly 400 redevelopment agencies, has been attributed mainly to "legislative maneuvers" to use funds formerly appropriated for redevelopment to shore up the state budget.